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Dale

Social trading strategies and pittfall

Of the hundreds of strategies used in investing, some of the most highly debated in terms of merit are social trading strategies. First, there is question by some whether social trading is a strategy at all. After that initial question is debated, regardless of which side of that line one falls on, is the question of if it provides a tangible benefit. In terms of trading and investing the definition of tangible benefit is a simple one, does it help you make higher profits?

Is Social Trading an actual Trading Strategy?

That is best answered with the question of “does it matter if it is or is not a strategy by itself”? There are many different strategies used in Forex trading. The honest truth is that every method is tempered by a wise investor with some application of other fundamentals. Even somebody that uses pure technical trading methods going off nothing but the technical indicators of choice to place a position would be foolish to think the release of an inflation report is not going to effect a market. This means even the most diehard technical trader will sometimes forego a position based on information not shown on a particular set of graphs.

Determining if social trading is a strategy simply means looking at how it is used. If an investor is a participant in a social trader site or group and makes all investments based on what trends and information they learn their then it is a strategy for them. The fact is, since that is a group of people (and in some instances a very large group of people) that are all looking at a myriad factors in taking their positions, you could certainly do worse than relying on information consolidated from many sources in one place.

If you base your trades on technical indicators or fundamentals but refer to a social trading group to try to get insight on particular pairings or currencies that show the most potential to look at in more depth, then social trading becomes another tool rather than an actual strategy. Once again, if it helps you find profitable positions and pairings, it does not matter.

How to Get the Most from Social Trading

Social trading is most effective as either a tool or a strategy when you are familiar with the group. Spending a reasonable amount of time reading the comments and learning about the group will be far more beneficial than simply looking at the highlights of the most profitable transactions in the last 4 hours that are often highlighted. Looking at that alone could lead one to believe that imitating a single investor that was on a good streak for a few hours is a good idea while being more familiar would allow you to know that in the last week those were the only good trades they had offset by many bad ones.

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This is followed from the sites that have demo account contests that track abilities over time, and a very distant third is the simple comments. People that are investing their own money and showing the actual trades or even tracked demo accounts offer some validity. On boards that are dominated by people simply telling and giving details of their last trades and making recommendations on future pairings it must be remembered it is very easy to look smart in a futures market 5 minutes after the results are posted. These people that always talk about results they have had but are never on the real time boards of actual trades should be given little heed when choosing where you put your real money.